Trains sit in the yard at the CN Rail Brampton Intermodal Terminal on Nov. 19, 2019.Mark Blinch/Reuters
Canadian National Railway Co. has slashed its 2019 profit guidance owing to an eight-day work stoppage that halted shipments of grain, potash and other freight.
CN said on Tuesday morning the strike by 3,200 conductors and yard workers that ended on Nov. 26 will reduce per-share profit by 15 cents. CN said full-year profit will rise by low- to mid-single digits, a reduction from high-single digits.
Walter Spracklin, a stock analyst at Royal Bank of Canada, said the revision was expected and in line with market expectations. “Assuming this new range represents growth of 2 per cent to 6 per cent, this would suggest an [earnings-per-share] range of $5.61 to $5.83,” down from analysts’ consensus of $5.97 before the strike, Mr. Spracklin said in a note to clients.
In response to reduced demand for rail service as a result of the slowing North American economy, CN is reducing its workforce by about 1,600 people, idling 5,000 railcars and reducing its fleet of locomotives. All North American railways are facing a drop in demand as manufacturing slows and a trade war started by U.S. President Donald Trump weighs on global trade.
CN said in a statement on Tuesday morning that it “remains focused” on cutting costs and resources, including its workforce, in the face of slowing demand. The job cuts are across a range of positions, union, management and information technology.
“We found it interesting that management would include the line ‘including its workforce’ when discussing resource realignment in light of weaker demand, representing in our view an indication that despite the strike, CN’s resolve to realign all resources remains intact,” Mr. Spracklin said.
For the three months ending on Sept. 30, CN made a profit of $1.2-billion, or $1.66 a share, and posted a 4-per-cent rise in revenue to $3.86-billion.
The tentative agreement between CN and Teamsters Canada Rail Conference has yet to be ratified by union members.
CN’s share price fell by about 2 per cent in late trading on the Toronto Stock Exchange on Tuesday, weighing on its 12-month rise of almost 4 per cent.
U.S. manufacturing output has slipped for four consecutive months, amid weaker demand and an uncertain trade picture, the Institute for Supply Management said on Monday.
CN’s revenue ton miles, a measure of freight volumes, fell by 36 per cent in the week that included the strike, from the same period of 2018. CN’s cargo volumes are down by almost 17 per cent since Oct. 1, compared with the same period a year ago. Year-to-date, volumes have fallen by 2.2 per cent, according to company data.
In comparison, large U.S. railways have posted a combined carload drop of more than 4 per cent, according to the American Association of Railroads. Petroleum products increased in volumes by 14 per cent while all other categories declined or were flat, led by an 8-per-cent slump in coal carloads on U.S. rails.
Similarly, petroleum is the only strong commodity on Canadian railways in 2019, with a rise in carloads of almost 18 per cent. Combining all freight categories, Canadian rail shipments for CN and Canadian Pacific Railway Ltd. are unchanged this year, compared with the same period of 2018, said the AAR, which includes U.S. operations of the two companies.
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